Has WestJet found the missing LINK?

048Following the collapse of Canadian Airlines in 2001, WestJet was able to fight off competition from Air Canada to firmly establish a presence in Western Canada. For many years, WestJet was able to grow capacity using a single aircraft type: the Boeing 737. Over an 8 year period, beginning in 2004, WestJet added service to 51 destinations in North America and the Carribean. However, during that time the carrier had only been able to enter 7 domestic airports. It appeared that they had reached a saturation point in Canada. In order to keep pace with Air Canada on the domestic front, something had to change.

In January of 2012, WestJet hinted at the possibility of launching a regional subsidiary to compete with Air Canada Express. A few months later the airline unveiled the Bombardier Q-400 as their aircraft of choice, and on October 12th, 2012 the name Encore was finally chosen. The airline commenced operations on the 24th of June 2013, inaugurating service to Nanaimo (from Calgary) and Fort St. John (from Vancouver).

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WestJet’s new CPA with Pacific Coastal should allow the Calgary based carrier to expand into lower yield markets. (Photo: John Jamieson, March 14th,2014, YYC)

Over the past 5 years, Encore’s operations have been highly successful. The superior economics of the Q400 have allowed WestJet to grow its domestic capacity and seriously challenge Air Canada Express. Additionally, the range of the Q400 allows WestJet the flexibility to operate the aircraft on “737” trunk routes when demand warrants a smaller aircraft. However, there remain a number of domestic markets which are too small to be served by the 78 seat Q-400. Enter British Columbia’s Pacific Coastal Airlines.

Pacific Coastal Airlines, based in Richmond British Columbia, was formed in 1987 through the merger of Air BC’s coastal operations and Powell Air. The regional carrier operates a fleet of Beechcraft 1900D’s (Y19) and Saab 340’s (Y30) to 16 destinations in British Columbia. Unlike some of its regional competitors (Air Georgian, Central Mountain air, etc) the carrier did not have any major interline partnerships or capacity purchase agreements; Pacific Coastal relied on careful network expansion and efficient aircraft utilization to stay afloat (No Pun Intended: PCA also operates a Seaplane division).

While Encore has become an effective competitor for AC Express, would the missing dimension be something that Pacific Coastal could fill? Why propose a partnership? Would WestJet be reluctant about funding the venture on their own?

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BC-based Pacific Coastal Airlines has the aircraft and maintenance infrastructure in place to enter a CPA with WestJet. While it may mean downsizing a couple of routes, the partnership with WestJet should generate a fixed flow of income. (Photo: John Jamieson, Sept 2nd, 2012, YVR)

If WestJet were to purchase (or lease) specialized commuter aircraft, they would need to provide a large amount of cash upfront and invest in crew training, infrastructure, and MRO services. On the other hand, a capacity purchase agreement (CPA) with Pacific Coastal allows WestJet to offer flights to smaller destinations, on relatively short notice, without taking on considerable financial risk. In this agreement, WestJet will likely cover the fuel costs and airport operations, while Pacific Coastal will handle the flight operations (Cabin Crew) and MRO services.

Many of you might ask why I would push for a CPA with Pacific Coastal, while at the same time praising the independent operations of WestJet’s subsidiary Encore. In short, I believe that the economies of scale and scope achieved by Encore are sufficiently large enough to justify full aircraft ownership and contracted flight operations. However, I’m not certain that the markets and margins WestJet seeks to gain from commuter operations are large enough to justify aircraft ownership or cabin crew contracts at this moment in time. It should also be noted that unlike in the United States where it’s common for regional airlines to enter multiple CPA’s, it is unlikely that Jazz Aviation or Sky Regional would’ve jeopardized their strong agreement with Air Canada to jointly fly for WestJet. In other words, Pacific Coastal is the best option as a CPA partner because they are not aligned with a competitor.

I reached out to WestJet’s media team to try and find out more about the agreement and if the carrier had any future expansion plans for WestJet Link.

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WestJet Link (As announced on November 24th, 2017) will connect 5 communities in Alberta and BC with WestJet’s hub in Calgary. Flights are scheduled to begin in March of 2018 operated by Pacific Coastal Saab 340s (as pictured). (Photo: John Jamieson, Sept 17,2017, YVR)

After discussions with WestJet’s media team, I was able to learn the following information about WestJet Link :

  • If operations are successful in Calgary, the airline would consider looking at other underserved markets in Canada for expansion. My guess is that they would start by adding flights around a major hub, such as Vancouver or Toronto, as opposed to launching point-to-point destinations.
  • While WestJet wishes to maintain the economic benefits associated with keeping WestJet Link Aircraft and personnel close to Vancouver (Pacific Coastal’s hub) they are committed to building maintenance facilities in Calgary and basing the aircraft in Calgary.
  • Lastly, while a CPA seems like the smart move at the moment in terms of crew and aircraft accessibility, WestJet has not ruled out the purchase of commuter aircraft in the future if it is deemed to be the optimal strategy for its shareholders.

At this time I’d like to acknowledge the time and assistance provided by Lauren from WestJet’s Media Relations Team to provide this information for EHviation.

I wish WestJet and Pacific Coastal the best in their new venture, and I hope to sample the product in the near future.

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